Commercial Division Blog

Posted: July 7, 2014 / Categories Commercial, Standing, Corporations

Condominium Board Lacked Capacity to Bring Lawsuit Because Suit was not Formally Approved by Board

On July 2, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Board of Managers of the Clermont Greene Condominium v. Vanderbilt Mansions, LLC, 2014 NY Slip Op. 51023(U), holding that a condominium board lacked capacity to bring the action against the condominium's sponsor because the board failed formally to vote to authorize the action.

In Board of Managers of the Clermont Greene Condominium, the defendant moved to dismiss on the ground that the plaintiff board lacked capacity to bring an action against it. The court agreed, ruling that even though, as a general matter, "Real Property Law § 339-dd . . . expressly confers standing and legal capacity upon a condominium board to prosecute this action," the board lacked capacity in this situation, explaining:

Business Corporation Law § 708(a), . . . provides that "except as otherwise provided in this chapter, any reference in this chapter to corporate action to be taken by the board shall mean such action at a meeting of the board." In the absence of contrary statutory authority directly relevant to condominiums per se, notwithstanding that condominium ownership is a hybrid form of real property, created by statute, and the fact that a condominium, unlike a cooperative, is not organized pursuant to the Business Corporation Law, Business Corporation Law § 708 provides the clearest relevant authority on the subject of board action. It is noted that the bylaws for Clermont Greene Condominium track the language of Business Corporation Law §§ 708(b) and (c) in authorizing action without a formal meeting "if all members of the board. . . consent in writing to the adoption of a resolution authorizing the action" and the resolution and written consents are filed with the minutes of the proceedings (see Bylaws, Section 11), and in providing for waiver of notice upon appearance at a meeting and for participation by telephone, evidencing an intent to conform to the procedures set forth in the Business Corporation Law, as applicable. There is no evidence or representation, however, that any meeting or vote of any kind effected a decision by the Board to commence this action.

Exclusive authority to manage the common elements and joint finances of the condominium is vested in the board of managers. . . . It is clear that plaintiff has standing to maintain this action against defendant, but in the absence of any indication that it acted as a board by voting to authorize commencement of suit, defendant's motion pursuant to CPLR 3211 (a) (3), must be granted as plaintiff lacked capacity to sue at the time the action was filed.

(Internal quotations and citations omitted) (emphasis added).

This decision illustrates the pitfalls of not observing the legal formalities of operating a business entity.